Editorial Note: While we adhere to strict
Editorial Integrity,
this post may contain references to products from our partners. Here's an explanation for
How We Make Money.
None of the data and information on this webpage constitutes investment advice according to our
Disclaimer.
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Have you ever wanted to know how to make money trading stocks? And who can blame you, it’s one of the best ways to create lasting wealth and a passive income. Strangely, despite this, many other people, like you, also feel intimidated by the stock market and are hesitant to start investing.
This intimidation and hesitancy are due to several myths doing the rounds. Fortunately, we’re here to help and, here, we’ll debunk these myths from the get-go and hopefully convince you that investing in the stock market is not only a good idea but also an excellent opportunity.
In addition, we’ll also give you an easy guide you can use to start investing in and earning returns with stocks. So, read on, and hopefully, you’ll have all your questions answered.
Why Are People Afraid of Investing in Stocks?
As promised, before we get into our guide to start investing, let’s first dispel those myths that lead to many people being hesitant of buying stocks. These myths lead to them being stuck with typical savings accounts that offer low returns and not being able to increase their wealth.
Here, the three myths that we’ll disprove are that:
Making money in stocks is just for the rich and you need a lot of money to trade in stocks successfully.
Making money on stocks is too difficult for an ordinary investor.
Making money in stocks takes a lot of time.
Myth 1 – Making Money in Stocks Is Just for Rich
The myth that making money in stocks is just for the rich is quite prevalent. This is, in part, because when people think of stock traders, they often think of some of the well-known investors like Warren Buffet, Peter Lynch, John Bogle, and the like.
But did you know that these investors also had to start somewhere and many of them didn’t have huge amounts of money when they started? Likewise, a significant part of today’s millionaires has earned substantial capital from investing in stocks, often also starting out with small amounts of capital.
So, how do you invest in stocks if you don’t have a massive amount to invest? Let’s take a look.
Use Warren Buffett’s Advice
Warren Buffet is a big believer in investing in index funds, especially if you’re a beginner. But remember, we’re talking about investing in stocks here, so you should consider investing in ETFs or Exchange Traded Funds.
What are ETFs? Well, as their name implies, they’re basically the same thing as an index fund but they’re traded on a stock exchange. To illustrate how they work, let’s look at a simple example.
Let’s assume there’s an ETF that invests in the top 10 stocks on the S&P 500. Let’s also assume that this ETF has 10,000 shares. This means that the shareholders of the 10,000 collectively invest in the shares mentioned above. In other words, with an ETF, the shareholders pool their capital to invest in a basket of stocks.
If you then buy 100 shares in this ETF, you own shares in the top 10 stocks on the S&P 500, even if only a fraction of them. The main benefit of this approach is that it increases diversification which is an excellent strategy to reduce risk. Also, because you don’t invest in individual stocks, you’ll often save a lot of money on commissions.
The benefits of investing in ETFs don’t end there, though. When it comes to returns, ETFs are also some of the top-performing investments you can make. For example, the Vanguard S&P 500 ETF, one of the most popular ETFs available, grew by 31.59% in the past year and 155.97% in the past five years.
This means if you invested $1,000 in this ETF back in 2016, you would’ve had $2,559 by now. So, if you want to know how to make money in the stock market, ETFs are one of the best tools to use.
How Much Can I Buy?
Now that we’ve seen that you can, in fact, invest in stocks with less capital, let’s look at how many shares in companies or ETFs you can buy with only $1,000.
When it comes to shares, let’s look at some of the popular companies out there and how many shares you’ll be able to own:
Apple – Currently trades at about $149.00 a share so you’ll be able to buy 6 shares.
Alphabet – Google’s holding company currently trades at about $2,821.00 per share. So, although you won’t be able to buy one share outright, some brokers do offer fractional sales, so you’ll be able to own just over one-third of a share.
Netflix – Currently trades at about $550.00 per share, so you’ll be able to buy one share.
Nike – Currently trades at about $169.00 per share, so you’ll be able to buy 5 shares.
Nvidia – Currently trades at about $216.00, so you’ll be able to buy four shares.
PayPal – Currently trades at about $278.00, so you’ll be able to buy three shares.
Microsoft – Currently trades at about $303.00, so you’ll be able to buy three shares.
Tesla – Currently trades at about $707.00, so you’ll be able to buy one share.
Visa – Currently trades at about $235.00, so you’ll be able to buy four shares.
Uber – Currently trades at about $41.00, so you’ll be able to buy 20 shares.
From the above, you can see that you can easily invest in some well-known companies with only $1,000 and, in some cases, even far less. Keep in mind, though, that these are just approximate prices and that they can change.
With ETFs, the situation is no different. Here, for $1,000, you can buy:
Two shares in the Vanguard S&P 500 ETF.
Five shares in the SPDR Gold Shares ETF.
Two shares in the Vanguard Information Technology ETF.
14 shares in the iShares Core Aggressive Allocation ETF.
The next myth relating to stock trading is that it’s too difficult for ordinary investors. This is often because ordinary retail investors compare themselves to professional investors and fund managers.
Sure, at a professional level, earning consistent returns from stocks and managing massive portfolios can be challenging. That’s exactly why professionals have the right qualifications and extensive experience that equip them with the skills they need.
But do you need these skills if you want to
invest your own money and make good returns with stocks? You certainly don’t. In fact, you can learn the basic principles from two or three good investing books to get started. From there, you’ll learn the intricacies of investing as you go along.
To help you choose the right books, we’ve compiled a list of four popular books on investing that will give you the foundation you need:
The Intelligent Investor: The Definitive Book on Value Investing - Benjamin Graham. Often referred to as the stock market bible, The Intelligent Investor is one of the first books you should read. Although it was first published in 1949, the principles explained in it is just as valuable today as it was back then. At its core, it teaches you how to buy stocks for less than their value, also known as value investing. And when you learn and master these concepts, you’ll be able to make money on the stock market without taking significant risks.
The Little Book of Common Sense Investing – John C. Bogle. In this book, John C. Bogle, the founder of the Vanguard Group, shows you everything you need to know about in investing in index funds. Here, he explains his strategy of investing in low-cost index funds in detail. With the skills you learn from reading it, you can successfully invest in ETFs.
A Beginner’s Guide to the Stock Market – Matthew R. Kratten. If you need a firm foundation on stock market trading, A Beginner’s Guide to the Stock Market is a must-read. It shows you everything you need to know from opening a brokerage account to buying your first stock. It also spells out the strategies you can use to make money in stocks and even earn a passive income through investing.
One Up on Wall Street – Peter Lynch. In One Up on Wall Street, one of the most well-known investors of all time, Peter Lynch shows how to outperform professional investors by finding excellent investment opportunities before they do. When you’re able to do this, you’ll find stocks that promise excellent growth that will serve your portfolio well.
Myth 3 – Making Money in Stocks Takes Too Much Time
The final myth we need to debunk is that making money in stocks simply takes too much time. So, if you believe this myth, you probably think that you can’t be successful in stock trading and investing unless you give up your day job. This is simply not true.
Sure, it may be true for day trading where you have to have to continuously monitor price movements and news throughout the day. Conversely, for other approaches, you don’t need to do this and the myth, therefore, doesn’t hold any water. In fact, with strategies like swing trading, you can earn with stocks and keep your day job.
With that in mind, let’s look at some of the approaches you can use:
Swing trading. When swing trading you’ll aim to capitalize on medium-term trends in the price of a specific stock to make a profit. This, ultimately, means that trades often last for days up to several months. As an example, let’s look at Microsoft’s stock. In September 2020, its stock traded at about $200 per share. Fast forward to January 2023, and its price increased to $300 per share. This means that, if you invested $1,000 in 2020, you would’ve bought five shares which would in 2023 be worth $1,500. That’s about 39% growth in a year without you having to do much.
Long-term investing. We mentioned earlier that Warren Buffet advocates that ordinary investors, especially beginners, invest in index funds or ETFs. Let’s take the Vanguard Information Technology ETF as an example. Its price was about $317 per share in August 2020. In January 2023, it grew to about $422 per share. This means it grew by 33% and, if you invested $1,000, you would now have about $1,300. If you extend this time to 5 years, your investment would’ve grown by 258%. The best thing of all is that you don’t have to do much active trading to get this growth.
Transferring money to management. Here, you’ll transfer your money to a financial advisor or fund manager, and they’ll do the investing on your behalf. As a result, you rely on their skills and experience to generate returns for you without needing to do anything.
Robo-advisors. Similar to financial advisors, robo-advisors allow you to invest without much work or input. The difference is that they’re digital, automated platforms that require little human supervision. One of the main benefits of robo-advisors is that they’re often far cheaper than financial advisors. Also, compared to financial advisors, they require lower minimum investments.
How To Make Money in the Stock Market: A Beginner Guide
Now that you’ve seen that it’s indeed possible to invest, and make money, in the stock market without a lot of money or spending a lot of time managing your investments, it’s time we show you how to do this. When following these steps, you’ll be able to start investing in stocks before you know it.
Step 1: Find the right broker. Although, at first, you might think that you can use any broker, there are pros, cons, and differences between brokers that you’ll need to consider. Ideally, you should consider a broker that offers a demo account for you to practice, lower fees, and lower minimum deposit requirements. We recommend that you choose one of the brokers in the table below as they offer savings on commissions and have low minimum deposit requirements.
Step 2: Choose a strategy For the next step, you’ll need to choose the right strategy for your goals, risk appetite, and how much time you want to spend on managing your investment. For example, with swing trading, where you’ll aim to earn profits from trends in the prices of stocks, you’re able to make good returns if you catch the trend early on. However, in a sideways market, or, in other words, when there’s no trend, swing trading isn’t that effective and can easily lead to losses. Conversely, if you invest in an ETF over the long term, you avoid much of the volatility, which reduces risk, but you’ll also often make less profit.
Step 3: Make your first deposit.Before you can trade, you’ll need to make your first deposit. So, how much should you deposit? Similar to the strategy you’ll use, the amount you deposit will depend on your specific investment goals and risk appetite. One recommendation, however, is that you shouldn’t invest any money you’re not willing to lose. In other words, you shouldn’t invest money that you need for other expenses or purposes or money that you borrowed. Also, another good idea is to gradually increase your investment over time, not only to increase your returns but also to reduce your risk through dollar-cost averaging.
Step 4: Learn how compound interest works.When you want to increase your returns significantly over time, it’s vital that you learn how compound interest works. This concept is simply the process of reinvesting any profits you make. By doing this, you’re able to increase your invested capital significantly. Let’s look at a simple example to illustrate this. Let’s say you invest $1,000 and you’re able to make a return of 10% per year on your investment. As a result, your total return will be $100 after a year. Now, if you reinvest the $100, your capital for the next year will be $1,100, which means your return for the second year will be $110. If you continue doing this, you’ll achieve exponential growth in your investment.
For example, a trader who invests $100,000 and plans on day trading, will, typically, be able to earn far greater returns than an investor who invests $10,000 in an ETF. Keep in mind, though, that the day trader will have far greater risk and will have to face the possibility that he could lose his capital.
With that in mind, let’s look at some returns you can, generally, expect. We’ve looked at the Vanguard S&P 500 ETF above, so let’s look at the iShares Core S&P 500 ETF. Here, you could’ve earned a total return of 297.01% in the past 10 years. That’s an annualized return, on average, of 14.78% per year. So, if you invested $10,000 10 years ago, you would’ve had $29,700 now.
Likewise, the average stock market return for the last 100 years is 10%. Although this doesn’t sound like much, keep in mind that, at this rate of return, you’ll double your investment in 7 years. Learn Best Stocks Under $5 according to Traders Union.
Risks to Consider
An important thing to remember is that investing in stocks isn’t only about making a profit and that proper risk management is crucial. Typically, when investing in the stock market, you’ll face some of the following risks:
Market value risk. As the name implies, you’ll always have the risk that the market turns against your investment. This could, for example, happen when the overall market crashes, or when investors buy stocks in trending companies while leaving good companies behind.
Economic risk. Here, the risk is that the overall economy impacts your investment, like during, for example, the 2008 financial crisis.
Inflationary risk. Inflation leads to higher prices and lower currency values. So, the inflationary risk is the risk of having your investment lose value over time.
Being too conservative. There’s nothing wrong with being conservative but being too conservative can reduce your investment’s performance and prevent you from reaching your financial goals.
Although most of these risks are out of your control, your strategy and the risk management approach you take are in your control. In other words, you can use the right strategies to reduce these risks by, for example, diversifying your investments.
Expert Opinion
Investing in stocks is one of the best ways to invest your money and build wealth over time. Unfortunately, many people don’t invest because they’re afraid to do so. So, hopefully, this post helped illustrate that:
You don’t need a lot of money to make money with stocks.
You don’t need a lot of time to make money with stocks.
Making money with stocks doesn’t need to be difficult.
More importantly, though, this post hopefully gave you an easy guide you can follow to start investing in the stock market and potentially earn good returns from it. To find out more about investing in stocks, brokers, strategies, and risk management visit Traders Union for more details.
Anton Kharitonov,
Traders Union Analyst
FAQs
Let’s look at some frequently asked questions many investors have.
Why should I invest in stocks?
Investing in stocks can be one of the best ways to build a diversified portfolio, build your wealth over time, and protect your capital against inflation.
How much should I invest?
How much you invest entirely depends on your goals and the risk you’re willing to take. Keep in mind, though, that you should never invest any money you’re not willing to lose.
Are there any risks?
As with any investment, there are risks involved when you invest in the stock market. Fortunately, with the right strategies and risk management approaches, you can minimize these risks.
How much can I make?
Once again, how much you’ll make depends on your goals, strategies, and risk management. To give you an idea, the average stock market return is about 10% per year but you can earn either more or less depending on your strategy.
Andrey Mastykin is an experienced author, editor, and content strategist who has been with Traders Union since 2020. As an editor, he is meticulous about fact-checking and ensuring the accuracy of all information published on the Traders Union platform. Andrey focuses on educating readers about the potential rewards and risks involved in trading financial markets.
He firmly believes that passive investing is a more suitable strategy for most individuals. Andrey's conservative approach and focus on risk management resonate with many readers, making him a trusted source of financial information.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.
